Deputy Federal Commissioner of Taxation v. Corwest Management Pty. Ltd. and Registrar of Titles.

Judges:
Burt CJ
Wickham J
Brinsden J

Court:
Supreme Court of Western Australia (Full Court)

Judgment date: Judgment handed down 9 June 1978.

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Burt C.J.: The events relevant to the disposition of this appeal as they appear from the evidence before Jones J. and stated in the order in which they happened are as follows:

• (1) On 12th April 1977, a notice of assessment of income tax in the sum of $203,933.27 for the income year ended 30th June 1976, was issued against Corser Homes Pty. Ltd. That company on the 29th April 1977, changed its name to Kierad Pty. Ltd. and in these reasons will be referred to as ``Kierad''. The income tax so assessed was due and payable on 16th May 1977.
• (2) Pursuant to a Trust Deed dated 26th April 1977, Kierad on 27th April 1977, transferred certain land referred to in these reasons as ``the land'' to the first respondent who in accordance with the deed held the land in trust for Kierad.
• (3) On 3rd May 1977, Kierad and the first respondent executed a Deed of Assignment whereby in consideration of a payment by the first respondent to Kierad of $3,831,114 Kierad assigned its beneficial interest in the land to the first respondent. The consideration for that assignment was paid on that day. As a money sum it was not less than the full value of the land.
• (4) Kierad did not pay the assessed tax on the day upon which it was payable. On 24th June the appellant issued a writ to recover the amount assessed and $1,731.19 being additional tax. The appellant entered judgment for $207,900.36 on 2nd August 1977.
• (5) On 15th August 1977, the judgment was registered pursuant to sec. 19 of 1 & 2 Victoria C. 110, adopted in this State with some modifications by the Imperial Acts Adopting Ordinance 1867, 31 Vict. No. 8. On the following day a memorial of it was registered under the provisions of the Registration of Deeds Act (19 Vict. No.14).
• (6) The caveat the subject of the appeal was lodged on 16th August 1977.

By originating summons issued on the 24th August 1977, the first respondent sought an order that the caveat ``be removed forthwith''; a declaration that the caveat was lodged without reasonable cause whereby the plaintiff suffered damage and an order that the appellant compensate the first respondent for such damage to be assessed.

On 26th September 1977, Jones J. made an order that the caveat be removed; a declaration that it had been lodged without reasonable cause and an order that ``further consideration of this application stand adjourned sine die with liberty to all parties to apply''. It is apparent from his reasons that the first respondent had failed to prove damage and the purpose of the liberty to apply was that that question be reserved ``for further argument'' and with the necessary implication that leave would be then given to adduce further evidence. I say this because unless that implication be made there could be nothing further to argue about.

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ATC 4390

Each order is under appeal.

The order that the caveat be withdrawn: By the caveat the appellant claims ``an estate or interest as holder of an equitable charge as to the estate or interest of the above-named registered proprietor in the land described by virtue of a judgment of the Supreme Court of Western Australia... entered up against Kierad Pty. Ltd. on 2nd August 1977, in action No. 1587/1977 between the Deputy Commissioner of Taxation as plaintiff and Kierad Pty. Ltd. as defendant and a Deed of Trust dated 21st April 1977, made by the registered proprietor''. The caveat forbids the registration of any person as transferee or proprietor of or of any instrument affecting the said estate or interest absolutely. The caveat was supported by a ``statutory declaration stating the nature of the estate or the interest claimed and the title thereto'': Section 137 of the Transfer of Land Act. That declaration consistently with the caveat asserts that: ``By virtue of the provisions of sec. 137 of 1 and 2 Victoria Chapter 110 ( The Imperial Judgments Act 1838) as adopted by W.A. Ordinance 31 Victoria No. 8, the said judgment so entered up operates as an equitable charge upon all lands of the judgment debtor, including lands of which the judgment debtor is the beneficial owner in equity''. In my opinion the caveat was irregular upon its face in that it is expressed to be an absolute prohibition of dealings when in the circumstances it should have been expressed to operate only to protect the particular interest claimed. Kerr: The Australian Land Titles (Torrens) System, p. 490.

The only issue before his Honour arising out of the evidence before him relevant to the ``interest claimed (by the appellant) and the title thereto'' was whether as at the date upon which the judgment was ``entered up'', this being 2nd August 1977, Kierad was, as the appellant asserted, the beneficial owner of the land or, as expressed in the words of sec. 13 of 1 & 2 Vict. C.110, whether at that time the land was land of or to which Kierad at the time of entering up the judgment was ``seized, possessed or entitled for any estate or interest whatever, at law or in equity''. Upon the evidence before his Honour, particularly the evidence as set out in para. (3) above which was put in by the first respondent and not then contradicted, the answer to that question was clearly in the negative and his Honour so held. At that point, in my opinion, an order ought to have been made removing the caveat simply upon the ground that upon the ground that upon the evidence then before the Court the appellant had failed to establish that Kierad had at the relevant time any interest in the land to which the asserted equitable charge could attach. In addition until amended it out to have been removed because, for the reasons stated, it was irregular on its face.

His Honour, however, permitted counsel for the appellant to depart from the title put forward in the caveat and in the declaration made in support of it. The departure made was to submit that upon and by the assessment and on that date and indeed prior to the assessment Kierad was under a liability to pay income tax and that that liability was a liability imposed by the Act and it was a debt although not then payable.
Re Mendonica , (1969) 1 A.T.R. 571 , and the cases cited there as to which see pp. 573-574, were cited to establish that position. Then it was said that as at that time, that is to say as at the date of the assessment, if not earlier, the debt was a Crown debt with all the privileges, priorities and consequences which attach to a debt of that character. One such consequence was said to be that upon the issue of the assessment the debt was a debt due to the Crown and so found by commission. It was then a debt of record upon which an immediate extent in chief could be issued under which the lands of the debtor could be seized. In this way he sought to show that the appellant upon the issue of the assessment obtained an interest in the land. The debt, being the assessment, was submitted to be a speciality found due by inquisition within the meaning of the Crown Debts Act , 1541-2, 33 Henry VIII C.39, and with the result that it was binding on Kierad's estate in the land when sold. In one way or the other he submitted that upon the tax being assessed it created a charge on the debtor's land in favour of the Crown which was effective against purchasers who took for value and without notice. This being so, the charge arose on 12th April 1977, this being the date of the assessment and so at a time at which Kierad was the owner of the land at law and at equity. The interest in the land so created survived and the first respondent took the

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ATC 4391

land subject to it. One answer advanced by the first respondent to that contention was to say that the debt as it arose upon assessment, if regarded as then being a Crown debt, did not ``affect any lands... as to purchasers... unless and until'' it had been registered in accordance with sec. 8 of 2 Vict. C.11 which was also adopted in this State by the Imperial Acts Adopting Ordinance of 1867. And this had not been done in time. From these contentions questions arose as to whether 2 Vict. C.11, as adopted, bound the Crown in the right of the Commonwealth and as to whether the debt as it arose upon assessment was within the statute of Henry and the dicta of Dixon in
F.C. of T. v. E.O. Farley Ltd. , (1940) 63 C.L.R. 278 , at p. 318 , was cited as authority for the view that it was not.

To me the entire argument to which the appellant's submission gave rise has an air of unreality. I do not think that the submissions giving rise to these contentions should have been entertained by the trial Judge because if accepted they would not establish the ``equitable charge'' sought to be protected by the caveat. However each party when before the trial Judge and when before us invited us to deal with the submissions upon the basis, as I understand it, that if upheld the caveat would be amended. For myself I accede to that request with some reluctance.

It would seem to me to be a remarkable thing if by the operation of a statute passed in England in the reign of Henry VIII the Crown in the right of the Commonwealth were to obtain a charge upon all the assets of a person assessed for tax under the Income Tax Assessment Act and rather more remarkable if that were to result by reason of the prerogative process of extents either in chief or in aid. The writ of extent after some statutory modification as to which see 2 Gul. IV No. 5 - described in Clark's Colonial Law (1834), at p. 669, as ``one of the most absurd enactments that ever issued even from a colonial legislative council'' - and 62 Vict. No. 9 was finally abolished in this State by sec. 11 of the Crown Suits Act of 1947 although the process of extent apparently continues to exist as a means of enforcing a judgment given in favour of the Commonwealth - sec. 67 of the Judiciary Act.

In my opinion, if a charge is created by an assessment to tax it must be created expressly or by implication by the statute from which the debt arises or by some other statute of the Commonwealth applicable to it. This has not been done. ``It may be conceded at once that all questions relating to the recovery of taxes imposed by the Parliament fall under the legislative power with respect to taxation. In the exercise of that power the Parliament may impose the tax either on property or on the person, may make it a charge on specific real or personal property or a personal liability of the taxpayer, or may impose a personal liability and secure it over property. Having made the tax a personal liability that is, a debt, as in the present case, the Parliament may make particular provisions to facilitate the enforcement of the liability and to ensure the actual recovery of the debt. Measures of this sort are incidental to the main purpose of the power and, independently altogether of sec. 51(xxxix), fall under the power''. - See Farley's case above per Dixon J. at pp. 314-315. Part VI of the Act which, except in the case of a deceased taxpayer - sec. 216(d) - and by implication in the case of a company being wound up or in the hands of a receiver - sec. 215 - says nothing expressly or by implication which gives support to the view that an assessment for tax and before the time for payment has arrived creates in the Crown any proprietary interest by charge or otherwise in the assets of the person assessed. We are not concerned in this case to know whether it does so after the time for payment has passed. As to that one can but observe that although it be the received doctrine that a debt payable in the future arises on the assessment it seems only to acquire the character of a Crown debt when it becomes due and payable - ``Income tax when it becomes due and payable shall be a debt due to the Queen on behalf of the Commonwealth...'', sec. 208.

Counsel for the appellant sought to establish an interest in the land sufficient to support the caveat in yet other ways. He argued and leave to adduce additional evidence in support of the argument was sought that the first respondent had not as a fact paid the purchase price and accordingly that Kierad was an unpaid vendor and as such retained an interest in the land to which

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ATC 4392

the Crown's lien or charge could and did attach. I do not think that the Court should entertain this submission nor admit the evidence sought to be adduced. The facts on which the submission is based, if established, may give rise to a claim by the Commissioner against the first respondnet similar in character to an extent in chief in the second degree - sec. 218 - but they would not in my opinion and for the reasons given establish a caveatable interest in the land. In addition they would raise questions of fact the answers to which would affect the position of Kierad who is not before the Court.

Generally, if the appellant considers that he has some interest in the land other than the interest which he has sought to protect by the caveat, then an action in which the issues can be precisely formulated and the facts relevant to them precisely pleaded should be taken to establish it. It is not, I think irrelevant to observe that the order appealed against was made on 26th September 1977, and to date, as we were advised, no such action has been taken.

Wickham J. has dealt with the other grounds of appeal relevant to this aspect of the appeal and I agree with what he has written.

I would dismiss the appeal in so far as it challenges the order that the caveat be removed.

The declaration that the caveat was lodged without reasonable cause: This order was made in the exercise of the power conferred by sec. 140 of the Transfer of Land Act which is in these terms:

``140. Any person lodging any caveat with the Registrar either against bringing land under this Act or otherwise without reasonable cause shall be liable to make to any person who may have sustained damage thereby such compensation as a judge on a summons in chambers shall deem just and order.''

It would appear from the affidavits which were before his Honour that no real attempt was made by the first respondent to prove that it had sustained damage and this being so it could be contended that the proper order and the only order that his Honour could make was to dismiss the application in so far as it was based upon sec. 140. However the orders which he made under that section are by this appeal attacked on the single ground, it being that his Honour was ``wrong in so far as he found that the appellant had no reasonable cause for lodging the caveat the subject of the proceedings''. I do not think that he was. Upon the evidence before him it was open to his Honour to find that the appellant had lodged the caveat without reasonable cause. In addition there was, I think, no reasonable cause shown for lodging the caveat forbidding dealing absolutely so as to protect an interest by way of equitable charge.

I would dismiss the appeal from this order also.